The PERS Board of Trustees seemed happy after hearing from their actuary. The funded ratio for PERS increased and investment returns were up.
So, are things turning up for PERS?
Only if you don’t mind your pocketbook getting raided.
Here’s the story. As the actuary report highlighted, PERS’ funded ratio moved from 61.1% to 61.8% (the minimum prudent level is 80%), investment returns for the year hit 9.16%, and wage increases were less than expected. But, as the report did not highlight, significant trends continued to weaken PERS – the unfunded pension amount increased, from $16.8 billion to $16.9 billion, the annual payout to retirees increased by $131.5 million, the number of retirees jumped up 2,713, and the number of active employees fell 1,695.
PERS now covers 104,973 retirees, up 28,830 over ten years. There are 150,687 active employees in PERS, down 16,435 over ten years. This trend of more retirees but fewer active employees is the fundamental flaw undermining PERS finances.
This flaw was exacerbated this past year when, for the first time ever, total payrolls covered by PERS fell.
Why is that not good?
PERS is funded by employer and employee contributions along with investment returns. These contributions are percentages of payroll, 15.75% for employers and 9% for employees. One of the actuary assumptions used to compute the funding ratio is that payrolls will grow every year, so total contributions will grow too. When that doesn’t happen, it throws off the actuary’s projection. When you add flat to negative payrolls to the negative trends above, the flaws in PERS funding become fatal, unless new money is found.
So, how did the funding ratio go up if these trends are in place?
As your pocketbook will soon show you, lots of new money was found.
Starting next July, PERS will increase the employer contribution rate from 15.75% to 17.4%. This higher rate times total payrolls will up annual contributions by nearly $100 million. Over the 30-year horizon actuaries use to calculate the funded ratio, this adds nearly $3 billion to projected revenues in today’s dollars.
That’s a lot of new money.
Where will it come from?
Well, public schools’ share of PERS payrolls is 37.5%, state agencies’ 17.5%, universities’ 16.2%, municipalities’ 9.8%, counties’, 8.2%, community colleges’ 4.9%, and other public entities’ 5.9%.
If the legislature only squeezes the increased $18 million for state agencies into its already stretched budget, the remaining $82 million will be passed on to you, the taxpayer, in the form of increased school and property taxes, increased tuition and fees, or fewer teachers and reduced basic services.
If the legislature, which put PERS into this terrible financial bind to begin with, chooses to cover more of the cost, where will it get the money?
Here are some scattered estimates of the yearly impact from higher employer contribution rates based on audit reports: among school districts, DeSoto County $2.5 million, Jackson $2.4 million, and Rankin County $1.6 million; among community colleges, Hinds $880,000, Northwest $507,000, Itawamba $405,000, Meridian $262,000, and Mississippi Delta $209,000; among municipalities Tupelo $341,000, Meridian $325,000, and Greenwood $181,000; among counties, Madison $270,000 and Lowndes $183,000.
Talk about unfunded state mandates forced on local governments!
Yep, PERS sees taxpayers as their evergreen money tree…and the legislature lets them.
» BILL CRAWFORD is a syndicate columnist from Meridian.
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